Redefine Properties Limited (RDF) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to Redefine's 2020 Group Annual Results Presentation. I hope you are all well. Just in terms of our conversation today, we're going to follow our strategic matters, which is to grow reputation, invest strategically, optimize capital, operate efficiently and engage talent. And as we go through the presentation this afternoon, you'll see key themes emerging from the conversation, and I just highlighted them for you as we go along. So in terms of growing reputation, you'll see that our deepened communication has borne fruit; remaining relevant to stakeholders is an ongoing process; and our heightened focus on ESG is gaining momentum. In terms of investing strategically, you'll see that our renewed focus on our relevance of space offering is very much a top-of-mind theme for our asset managers. We are expanding offshore, particularly in the logistics area, through development activity. And protection of our asset values is an ongoing process. Yes, there has been value write-downs this year, which we will discuss. But we believe that we've now set a new floor from which to grow. In terms of optimizing capital, the rightsizing of our asset footprint to the constrained capital base is an ongoing process. We will cover it in a lot of detail. Our liquidity is being bolstered by the acquisitions that we've made. I'll talk a little bit more about that. So I don't want to elaborate at this point. And then very importantly, we have explored dividend payment alternatives, once again, a matter that we will cover in some detail in a short while. In terms of operating efficiently, a very strong theme through this whole COVID-19 lockdown period has been the support we've granted to tenants through rental relief and some deferments. And then just looking at our business, we've been very proactive on the utility side in terms of managing our cost bases carefully as we can to try and cushion some of that blow that has emanated from the support through rental relief. And obviously, discretionary expenditure has been very much part of that focus. Similarly, unlocking procurement efficiencies has also been something that we've been working on very hard, which will bear fruit going forward. And then just lastly, in terms of engaging talent, instilling a culture of innovation and learning is an ongoing process. We have accelerated transformation. And lastly, through the lockdown process and working flexibly going forward, we've deepened our engagement through intensified collaboration. So just moving on to Growing Reputation. Key Outcomes, and for a change I'm going to start off not with environment but with governance. We are very happy to announce that Ntobeko Nyawo has been appointed Redefine's CFO from -- it will be February 1, not March 1. He's renegotiated his notice period. So thank you very much for that, Ntobeko, and we look forward to introducing him to those of you who don't already know him. I think he might be very familiar to a lot of you. Just carrying on with governance. We changed the service provider that does our ethics survey to The Ethics Institute, previously it was Ethics Monitor. And you'll see we've achieved a 76th percentile advanced ethical maturity score. We are also the first SA REIT to become a formal signatory to the UN Global Compact, which we are very excited about. In terms of environment, we are aligning our ESG reporting to the task force on climate-related financial disclosures. We also are very happy to announce that we've broken the milestone of 100 Green Star-rated certified buildings, from 74 in 2019. And then just on the water consumption, we have an ongoing process here of installing online monitoring and leak detection as well as smart shutoff valves and sensors. There's a lot of work still to be done on water. This is an area of focus for us. Moving on to social. Our employee engagement score of 92% outperformed both the national benchmark of 62% as well as the global one. And then just in terms of our supplier code of conduct, we are only as good in our ESG endeavors as our service providers. Also, we are looking at the entire supply chains to ensure that we have an ESG alignment throughout our service delivery. And then just lastly, we were awarded 7 Footprint Marketing Awards from the South African Council of Shopping Centres that we are very pleased with. Just in terms of our evolving response to COVID-19, you'll see that we are positioning Redefine for a better future that will contribute to a more inclusive operating context. And just looking at our various stakeholders, you'll see that for investors and funders, for which I thank you, we will on an ongoing basis collaborate with yourselves as well as our bankers and other debt-funding providers to ensure that Redefine is supported to reduce balance sheet risk, which we'll cover. From an employee point of view, fostering innovation through diversity is absolutely important to cocreate our future, something we are working on on an ongoing basis. And then just from a tenant's point of view, ensuring that we remain relevant to their needs. It's something that evolves on an ongoing basis, but it's something we are very alive to. And then just looking at suppliers with brokers and service providers. Once again, from an ESG point of view, to be who we say we are, we need the entire supply chain to be aligned, which we are doing from an ESG perspective and values perspective. And then lastly, just in terms of our communities, living our purpose is so important going forward, to deepen our inclusivity by ensuring that we create and manage spaces in ways that play supportive roles to the communities in which we operate. Okay. Just looking at our focus for 2021 from a Growing Reputation perspective. We are working very hard to restore stakeholder confidence. And by that, I mean getting ourselves back to pre-COVID levels. And I hope to demonstrate what we are doing today will give you that comfort. We need to be who we say we are, and that is through entrenching our Redefine brand throughout the supply chain as well as from a consistency point of view, there's a strong focus on the whole experience of management process of our tenants from the inception, i.e., from the lead right through to the lease renewal process. And then just lastly, investing in our stakeholders. We want to strengthen our stakeholder relationships with every stakeholder, and that is something that will be done through our values, which underpin our reputation. Moving on to Investing Strategically. Just to touch on a couple of key outcomes on investing strategically. You'll see that our property asset management -- or property asset base, rather, is ZAR 81 billion. It has reduced from last year's ZAR 94 billion, and we'll explain why. But very importantly, during this year, despite the challenges that COVID posed to us, we were able to conclude property asset disposals to realize ZAR 13.4 billion. I need to add that ZAR 7.1 billion thereof has been banked in financial year 2020, and the balance will be banked in the first half of 2021. Our offshore expansion totals ZAR 1.3 billion, split ZAR 700 million into our logistics platform and ZAR 600 million went into the student accommodation assets in Australia to complete Swanston Street. You'll also note that our local development activities totaled ZAR 1.5 billion. 81% of our property asset platform is now local. And very importantly, we have reduced our geographic and currency risk exposure through exiting RDI, that's the U.K. market; similarly Australia in due course. And then hopefully in 2021, it will also be our Growthpoint Investec African Properties shares that we'll also be disposing of. So as you can see, we've deployed capital of ZAR 6.3 billion. And I just need to point out that the first time in my career at Redefine, you will note that we have, as a capital deployed, a settlement of a loan as opposed to an investment into an asset. And that exchangeable bond, if you'll recall, was as a consequence of exiting RDI. In rand terms, it was ZAR 2.8 billion; in euro terms, EUR 117.2 million. It was expiring in September this coming year. Once again COVID-related, an accelerant situation there that necessitated settling the bond. Moving on to the local portfolio. You'll see the carrying value sits at ZAR 64 billion. The total GLA is at 4.4 million square meters. The average value you'll note has declined. That is a consequence of impairments. We'll talk a bit about that, so just bear with me on that point. And you'll note that the weighted average unexpired lease term is essentially the same as last year, slightly up, 3.8 years. Our weighted average lease escalation has moved slightly down to 7%. And our tenants have remained relatively consistent at just over 4,500. Just in terms of key outcomes on the local portfolio. You'll see that the active portfolio had a revaluation of negative 10% as a consequence of all the COVID-related adjustments and so forth. But very importantly to note that we have let, and this is new lets as well as renewals, totaling 833,700 square meters of space. Now that is a very good achievement in what has been a very tight and challenging market. We are very proud of that statistic. In terms of developments, you can see we completed developments totaling ZAR 94 million. And we continue to rightsize our retailers' footprint to improve trading performance. That has been an ongoing theme. It's not a COVID theme. We've done it throughout, and we will continue doing so. In terms of redevelopments, we've completed developments totaling just under ZAR 383 million. And you'll note that disposals on the local front was about ZAR 894 million. Now just in terms of the office performance, as you know, there's a very keen focus on retaining and attracting quality tenants. And then just on the industrial side, there's a huge emphasis on efficiency through building design. Okay. Just looking then at the local retail portfolio quickly. The retail portfolio totals, in value terms, ZAR 25.7 billion. There's been a renewal success rate by GLA of 65.4%. The COVID rental relief totals just under ZAR 223 million. And the GLA is about 1.4 million square meters. We've had a lot of disposal activity in value terms in terms of sectors, the most at ZAR 475 million. The active vacancy has moved up by 1% to 5.6%. Trading densities are sitting at August at minus 6%, but I'm happy to report that they have reversed in September, October, and we're sitting in positive territory once again. Just lastly, renewal reversion sitting at minus 5.4%, which is indicative of a very challenging and competitive market at the moment as regards retail. Just moving on to the office portfolio. The value of the portfolio sits at ZAR 23.3 billion. The renewal success rate is at 60.6%. The COVID-19 rental relief granted to tenants, just over ZAR 74 million. And disposals were ZAR 92 million. That was 1 building in Sandton Fredman Drive. If we look at the GLA sitting at 1.2 million square meters. And a number of redevelopments were completed totaling ZAR 328 million. In progress is a small amount, mostly in Cape Town, ZAR 27 million. The active vacancy is high, sitting at 13.8%. And you'll note that it has moved up quite substantially from the 10.2% recorded in the prior year. But I think what is important to look at is the active vacancy by grade, which is on the right-hand side in the pie chart there. We will see the premium grade and the A grade sitting at 6.5% and 14.9%, respectively, with huge pressure, as you can see on the secondary grade at 22.6%. Also, just lastly, renewal reversion sitting at minus 4.3%, which is indicative of the market. But something to watch going forward will be our Solar PV, sitting at 3,300 kilowatt peaks. Watch the space, we hope to grow that in due course. Okay. Just on the local industrial portfolio. The value sits at ZAR 12.4 billion. Our renewal success rate is at 63%. As you can see, from a COVID rental relief point of view, quite low, ZAR 21 million. But very importantly, you'll note that Robor is now fully let once again with a 10-year lease from 1 October. And linked to that would be the Macsteel lease that was extended by 5 years in exchange for a reversion to market as well as taking occupation of Robor. So there is impact as a consequence of the restructure of the Macsteel lease, but we believe that from a sustainability point of view, it was the right thing to do. So just looking at active vacancy, although it's grown, it is at the lowest in -- out of all the sectors at 4.1%, and our tenant retention is a very healthy 92.7%. Reversions, as you see, are sitting at just under 7%. Okay. Just in terms of our evolving response to COVID-19, you'll note that we are very alive to the changes in behavior that are occurring as we sit here, which will shape how we all live, work and play, and we are actively responding to those. So for example, in the retail sector, we are certainly looking at expanding our click-and-collect at our shopping centers. We have piloted one at Kyalami Corner. We are enhancing our convenience of our larger format retail. We are also increasing our exposure from a tenant mix to essential services. We are also looking at enhancing our value offering tenant mix by adjusting to that. And then just lastly, we're encouraging emerging retailers to trade in our established shopping centers. From an office point of view, we are flexible, and we love to cooperate with our tenants to ensure that we're optimizing their space requirements. We have ensured that all our properties are COVID-friendly, and we will continue looking, going forward, how we can make them even more friendly to ensure safety for everybody. We are looking at proactive engagement with our tenants to manage their future needs as well. So it's not just an immediate situation, but also looking forward, we'll be working very closely with our office tenants. From an industrial point of view, as you know, we've got a number of well-located developable properties, which will be developed only on demand, not on spec. We are offering flexible lease terms to accommodate the volatile environment in which we find ourselves. And once again, like the Macsteel, we are reviewing our lease terms to ensure our tenants' sustainability on an ongoing basis as well as providing space that's relevant to our users' needs. Just in terms of our alternative investments, I won't dwell too much on this slide other than to say, on the local student accommodation front, nothing really has changed. Our intention remains to dispose of this portfolio because we do believe that it has great prospects for a specialist investor who's focused purely on student accommodation. Our loans essentially have remained static. And then just from a complementary point of view, there's a huge focus on expanding our solar PV plants as well as leveraging non-GLA opportunities of our property asset base to ensure that we alleviate the dependency we have on rental income for organic growth going forward. Just moving on to the international portfolio. The carrying value sits at ZAR 15.6 billion. It does include some assets held for sale, and I just alert you to that in that our core assets in this portfolio is EPP valued at ZAR 7.3 billion, and our European logistics platform at ZAR 1.9 billion. Now just bear in mind, if you look at the European logistics prior year comparative of ZAR 5.8 billion, please do not be alarmed. There's a good reason for that in that we are now accounting for our logistics investment on an equity basis, whereas last year its asset base was fully consolidated into our numbers, hence the ZAR 5.8 billion. If you just look at it on a see-through LTV point of view, you will see that the current situation is 54.2%. It is high, and has got our attention and will reduce as a consequence of disposal activity, principally out of Australia, and to a minor extent, Africa as well. In terms of looking just at some key highlights, for our international portfolio, you'll see that we've been very busy to derisk, refocus and ensure that the asset platform going forward is one where we have scale in a geography. And also where we are able to control better or manage the risk universe to which we are exposed through having direct management presence, particularly on the logistics front. But if you just look at the activities, we disposed of Strykow. That was a logistics development, our first in Poland, that we sold for EUR 49.2 million at a yield of 6.1%. That was to provide us with some liquidity at the start of '20 -- calendar 2020. We introduced an equity partner into our logistics business to raise equity of EUR 163 million. We disposed of RDI REIT for GBP 106.3 million. We've concluded the disposal of the Australian student accommodation for AUD 459 million, that's a gross consideration of AUD 459 million. On the 11th of December, Leicester Street, that's our first completed development in Australia, will close. And then Swanston Street will follow in 2021. We also sold our Cromwell units for AUD 53 million. And then we exchanged a nonrecurring income-producing interest in Chariot for M1 Marki valued at EUR 123 million. And that transaction will only close in December 2021. In terms of our European logistics platform, we just want to give you a sense as to the scale there by showing you a video. But before I do so, I just want to share a few statistics on the logistics platform. The value of the assets currently sits at EUR 365 million. Very importantly, there was limited impact from COVID-19 on this investment. We received a dividend throughout the year from logistics. Our income-producing GLA at the moment is 527,000 square meters. And you'll see that in there was a nice boost in that we added 160,000 square meters during the course of 2020. We have got land available which we can expand further on. And there's also new developments in progress of about 145,000 square meters or in euro terms EUR 99.2 million, which will take us very quickly up to about the 700,000-odd mark with a view to getting to 1 million square meters in about 2 years' time. Very importantly, Redefine's remaining equity commitment which, as you know, as a consequence of introducing the equity investor was EUR 66.3 million, now sits at EUR 48 million. And this will be part funded by development earn-outs of about EUR 19 million that we are currently completing. These are developments in progress that we also unsold as part of the introduction of the equity investor. Just lastly, active vacancy sitting at 9.4%. It has reduced from vacancy level of 16% last year. Okay, so we're just going to play you a video. I think some of you may have already seen it, so please bear with me. But we do believe it gives a good sense as to our exposure as we sit now in Australia -- in Poland, sorry, and we believe it also will give you a sense as to the size of Poland and the potential over there for further expansion. [Presentation]

Okay. So I'm sure you'll agree with me that our Polish logistics platform holds a lot of promise going forward, and we are really excited about growing that exposure in years to come. Okay. Just looking at capital allocation priorities for 2021. These are commitments that we've made already. As you can see, we want to be playing in that top right-hand block as much as possible, where we are ensuring that we get the highest prospect for income growth and then also from a long-term perspective, the most value creation. So expanding asset platform totals ZAR 808 million, most of which has been allocated to European logistics developments. Just in terms of 2021 going forward, you'll note that every asset is up for a reevaluation in terms of its capital growth prospects as we continuously look to position our asset platform for organic capital growth. Our focus on opportunities to expand the asset -- the income base is very, very important as we build sustainable revenue growth into our platform. In other words, moving away from reliance on only rental income. And our need to create spaces for people to live, work and socialize sustainably is extremely important to attract and retain quality tenants. Now as I said earlier, COVID-19 is by no means a change agent. It is an accelerator. And just if you look at our reorganized future asset platform, last year, when we presented our year-end results in November, you will remember that we said that we would be in this position in about 3 years. Well I'm happy to tell you that we have achieved what we set out last year in 1 year. Okay. Just moving on to Optimizing Capital. As you can see, a very busy period for us as we have worked very hard to strengthen our balance sheet, which remains our top priority into the New Year as well. Our average cost of debt has increased slightly by 20 basis points to 6%. The reason for that is, as a consequence of switching out of British pound exposure into local debt, mostly, as well as obviously settling the exchangeable bond, which was at a very attractive 1.5%. Our interest cover ratio, as you can see, has been lowered, as a consequence of COVID. We'll touch on the income aspects driving that at 2.6x. Our Moody's credit rating didn't escape the downgrade that the sovereign suffered. As you can see, we're now at a Ba2, which is in line. Our interest rates are hedged on 81.4% of debt, well above our minimum of 75%. Our LTV, I'm going to talk a lot more about, at 47.9%. Our liquidity levels have been bolstered by disposals during the course of 2020, with more to come in 2021. I'll talk a little bit more about that as well. I've spoken about the settlement of our exchangeable bond. Our unsecured debt versus our unencumbered asset sits at a healthy 51.5%. If we look at what's committed, that is undrawn facilities and cash available, it totals ZAR 2.8 billion. And then very importantly, the Mall of the South put option has now been deferred for 3 years, I'm pleased to report, which means that we will now have 3 years to see how we deal with that asset. But very importantly, from the beginning of December now that we have had Competition Commission approval for the acquisition, we are in the process of taking over the property management of this mall, and we believe we can make a significant difference to the income-earning generation capacity of Mall of the South. Just in terms of our loan-to-value, we have reported, as I said earlier, a 47.9% result. I just want to put that in perspective. Reduction initiatives that we implemented, and in my view, very successfully, resulted in a 5.7% reduction in the LTV. Unfortunately, the COVID-19 impacts on asset values, which we will talk about as well in due course, resulted in a 7.8% increase in LTV, which negated all our efforts. So for 2021, we are back at the grindstone, so to speak, to reduce our LTV to a target of sub-40%. And how we will achieve it is as we've outlined in the pathway alongside, we'll -- where we are looking to retain cash from operations. We'll talk about dividends in due course. We have earmarked local property assets for disposal to take the LTV down by 2.4%. I just need to stress that in value terms, it means we need to dispose of ZAR 3.6 billion of property assets. We've already achieved ZAR 1.2 billion thereof. It's already, so to speak, in the bank. And we believe our track record speaks for itself when it comes to asset disposal. So we're confident we can do that in this coming year. We will also be looking to dispose of our local student accommodation. We will complete the sale of our Australian student accommodation, as I mentioned earlier. And then also we have some health care assets that we believe are noncore that we'll also dispose of to get us to our target LTV of sub-40%. Just in terms of our evolving response to COVID-19, we are happy to report that our collections of billings in September, October, subsequent to the August year-end, are sitting at 96% and 97%, respectively. So a good recovery in that regard. In terms of our LTV covenants, we have negotiated temporary relaxation with our funders for the periods 31 August '20 as well as 28th February 2021, for which I thank everybody for their indulgence. EPP remains sufficiently capitalized to meet its liquidity needs and is doing so by means of withholding dividends. The banks, and once again thank you, remain supportive and pragmatic with regard to access to liquidity as well as covenant compliance. And very importantly, our liquidity position, as said earlier, was healthy, but you'll see that we do have a boost in half year 2021 from local and offshore disposals of ZAR 1.2 billion and ZAR 5.1 billion, respectively. And then very importantly to note that our debt capital markets listed notes, there's a total of ZAR 7.2 billion, only ZAR 659 million matures in the next 12 months. So very manageable, in our view. Just in terms of the 2020 dividend, this was a matter that Redefine's Board has given very careful consideration to, especially to ensure that everybody's needs as stakeholders are looked after, and we are approaching it from a responsible citizen point of view. I must say that Redefine wants to maintain its REIT status. Similarly, it wants to preserve liquidity as well as protect its loan-to-value ratio. As a result, various options are under consideration to provide shareholders a mechanism to monetize the proposed distribution. The mechanism that we are looking at is subject to regulatory and other approvals. And as a consequence, the Board has resolved to defer its decision on the declaration of a dividend until no later than February '21, which is in compliance with the relaxation that the JSE and the FSCA provided to us in terms of extending the payment of dividends by a further 2 months. I must note that should the Board resolve -- and this is a last resort, I must just emphasize that. But should the Board resolve not to declare dividend, the company may be liable for taxation of approximately ZAR 420 million, a situation we would love to avoid, if possible. Just looking then going forward at our 2021 focus. As I said earlier, improving our loan-to-value is an ongoing process. We have a clear pathway to do so. Optimizing our funding model is very important to ensure that we reduce liquidity risk. And then broadening our funding sources is something of an ongoing focus to ensure that we improve access to and cost of capital as well. So with that, I'm going to now move on to Operating Efficiently. And just in terms of some key outcomes, our active portfolio margin is at 78.5%. Now you'll see a big slippage on last year's 84.9%. The reason for that is, as a consequence of the COVID-related rental relief of ZAR 318.5 million as well as the increase in the bad debt provision of ZAR 310.4 million. So if one was to reverse those 2 effects, you'll note that our margin is in line with what we achieved in the prior period. So we believe that in a normalized environment, our portfolio margin is, in fact, at the same levels as previously reported. Our weighted average rental renewal growth you'll see is at a negative 4.6%, a consequence of very competitive leasing situations. Our active portfolio occupancy sits at 92.7%. Yes, there's been a slippage of some 2.2-odd percent. Our tenant retention rate by GMR is at a healthy 90.8%. Once again, the consequence of COVID was that there were no dividends accrued from listed investments. But also equally, very interesting to note, that nonrecurring income has been virtually eliminated from the base. So going forward, nonrecurring income is no longer going to feature in Redefine's financial results or distributable income for that matter. Okay. Just looking at the impact of COVID that's playing out in the numbers. Full year distributable income per share sits at ZAR 0.515 per share, that is down 49% on the prior year. Goodwill intangibles have been written off. So our reported NAV now only represents tangible assets. The destructive impact of COVID-19 on asset values is the biggest driver of the NAV decline, which we will touch on in due course. And also, you'll see that our net operating cost-to-income ratio sits at 20.7%, for similar reasons to the operating margin that I mentioned earlier on. So not to belabor the point, but the bulk of our distributable income decline is due to the subdued international contribution as well as the local COVID-19 impacts. And our market cap, as you know, sits at just under ZAR 15 billion. And then just in terms of our local debt funding cost, you'll see there has been an increase, one to the debt reorganization that I spoke of; and then secondly, developments coming onstream in 2020 and no longer attracting capitalized interest. Just in terms of contributors to our changes in distributable income, from a waterfall point of view, you'll note that the headwinds far exceed the tailwinds to the extent of ZAR 2.7 billion. And if I was just to simplify this waterfall, I can group a few things together. And the COVID-related impacts of that decline of ZAR 2.7 billion totals about ZAR 1.8 billion, comprising international dividends that we didn't receive in this period versus last year, totaling ZAR 1.1 billion; rental concessions of ZAR 318 million; and bad debt provision increases of ZAR 310 million. If you just look at the change in net asset value per share, we will focus on the tangible net asset value. You'll note that there's been a decline there of about ZAR 2.29 per share. And if I was once again looking at simplifying this analysis, you could add up all the COVID-related asset write-downs, which totaled ZAR 2.27, which accounts for the bulk of the ZAR 2.29 per share decline. In terms of our evolving response to COVID-19, yes, we have a lot of work to do on an ongoing basis, and that includes continuously engaging with all our stakeholders to ensure we keep abreast of the pandemic impact on their businesses. There is some future rental relief arrangements that may be required. As you know, there's a big question around whether or not South Africa would suffer another wave of the pandemic. But for now, you will note that our 2020 rental deferments have been extended to 2021 to the extent of ZAR 50 million. We will also account for any deferments on a cash received basis, I must just add that. Rental discounts already agreed for 2021 amounts to ZAR 82 million. Our focus on cash collections is absolutely critical, given that cash flow across the board is an area of extreme pressure for everybody and going especially into the festive season and beyond. We'll be watching that very closely. We are now accounting for dividend income on a cash received basis only. And then just in terms of proactive utility management and unlocking procurement efficiencies, that is an ongoing process. Lastly, Redefine has made a decision to relocate its head office to 155 West Street in Sandton, and this will unlock significant savings through a switch from a building that offers very strong letting prospects at higher rentals than what we currently can achieve at 155 West Street. In terms of positioning ourselves for the recovery in 2021, we will continue to focus on optimizing operational efficiency to ensure that we succeed in a very competitive leasing environment. On an ongoing basis, we will seek sustainable income earning opportunities to ensure that the core assets deliver to their full attention. And then very importantly, we want to look far more at harnessing technology as an enabler rather than see it as a disruptor to make our business far more easier to do business with internally as well as externally, and in the process, achieve operational excellence in all aspects of what we do. Looking at our people, who are the heart and soul of Redefine from an Engaging Talent point of view, we already mentioned that we achieved 92% as an engagement score. It's very high in relation to the global and local benchmarks. Transformation is being addressed and is very well advanced across all levels of the business. We have been certified as a top employer. And if you just look at our Learnership Programme, it continues. A lot of it now has moved online as a consequence of COVID, but nonetheless has continued. Our remuneration policy has been approved with overwhelming support. I thank everybody for your support. Importantly, annual increases and bonuses this year won't happen. But equally important to note that there were no retrenchments as a result of the lockdown. And then just lastly, we did launch an internal Managers to Mentors program. What did go unnoticed this year was, unfortunately, the celebration of Redefine being listed for 21 years. So our staff got together, and they made a video to celebrate the milestone. I want to share it with you because we are exceptionally proud of what our staff did. And I think it goes to the heart and soul of who we are. And I think if you just see, there's no senior people in it, it is our staff unprompted, speaking from the heart. So with that, I'm going to share a quick video with you just to demonstrate to you that Redefine is well above and beyond me as well as Leon and David, who make up the executive team here at Redefine. [Presentation]

I'm sure you would have agreed with me that the video certainly demonstrates who we are as well as a lot of our staff missing their real calling in life, which perhaps is in a different career path to the one they're currently following. But moving on then just to our evolving response to COVID-19, as I said earlier, this is another area where COVID-19 has accelerated a number of priorities and thoughts that we had around staffing, but certainly from an introduction of remote and flexible arrangements. Those policies have been implemented. We continue to provide employee wellness offerings to ensure that, especially on the emotional side, staff are well supported by regular check-ins. And then very importantly, we provided all staff with a free day off on the 25th of September to give them a long weekend. And we were also insistent upon everyone taking a mini break of at least 4 consecutive days to build resilience and avoid burnout. We've also amended our leave policy to accommodate employees who may forfeit leave as a result of the lockdown. Our engagement score was testament to an extensive internal communication campaign that has been conducted to engage, equip and support our employees during the lockdown using our values for key messaging as well as emphasizing our purpose, and that continues on an ongoing basis. And then just lastly, learning and development continued regardless with most of our programs conducted online. Looking ahead to 2021, we want to build a resilient workforce. And in doing so, we need to move away from linear thinking and embrace change. Given that our reference points are constantly being reset, one has to work in a more agile manner to ensure that our decision-making can be modified as we go along. We have fast-tracked already our flexible working policies, and this is a requirement to be adaptable to a fluid working environment as well as working in an agile way. Culture is something that we work on continuously, and we're embedding diversity on an ongoing basis to ensure that inclusive decision-making is a consequence thereof, but also, very importantly, that a culture of trust and transparency is built. Moving on to our outlook. It goes without saying that property fundamentals domestically and globally will remain challenged for 2021. A low-growth environment will persist for some time to come. And Redefine's repositioned asset platform will deliver a reset income base. So we thought it would be helpful if we give you a sense of a normalized, and I must stress, a normalized basis of indicative distributable income given that there are so many moving parts that have been severed during the course of 2020. And when we look at the numbers and we add back the impact of COVID, we provide for organic growth and foreign dividends resume, we believe that the reset base can deliver ZAR 0.80 per share. Now it's very important to note that our income recovery to the reset base hinges on COVID-19 time lines. As we know, this is an evolving situation. It's highly uncertain. And as a consequence, we are unfortunately not in a position to provide guidance on 2021's distributable income per share or distribution per share for that matter. So with that, I'm going to thank you for your time and indulgence, and I'm going to hand over to some questions from you. I just want to close by saying a few words to David, in particular, David Rice. As you know, David retired on the 31st of August. And whilst we were recruiting a new CFO to replace Leon, who will succeed David in the COO role, David agreed to put his retirement plans on hold to ensure that there was a smooth situation from a management continuity point of view whilst the CFO was being recruited as well as to provide Leon in the New Year to hand over to Ntobeko. So David, I just want to thank you. What you did for us was really very special. It was a selfless act. All we can say to you is thank you for showing us who you are by ending your career the way you did. So once again, thank you. So with that, I'm going to hand over to questions now.

I can see there are a couple. But if you will, excuse me, given my age, I now need to wear spectacles to see the questions. So just forgive me while I put on my glasses here. But the first one is from [ Nyakanazi ] from Ashburton. Some of your questions may already be answered. I'll read them out nonetheless in the -- just to be transparent. And you say that "The CEO touched on water savings under the environmental section as well as rolling out solar PV on the properties. Could you give us an indication on the quantum of the cost savings as a result of the water meters and sensors as well as the PV rollout?" So [ Nyakanazi ] the question is difficult in that the water consumption is being managed as responsibly as possible. So leak detection, for example, is something that we are going to pick up far earlier than would have been the case previously and so forth. And this is more of a preventative measure. Very difficult to put money to it. But just in terms of our solar PV rollout, about 5% of our energy consumption is -- or cost I should say, is being saved as a consequence of generating electricity for our own use. I want to just mention that the Department of Energy have instructed NERSA to lift the ban on -- or the restriction, I should say, on the solar PV plants of 1 megawatt. The way in which you get this allowed is through a relicensing of your plant, which is in process. I think our savings are actually going to improve in time to come on our existing fleet, just by the way. In terms of the group plans to dispose of assets and exit markets such as the U.K., Nigeria and Australia in due course, is the group changing its strategy? So we're not going to be a pure South African REIT. At the moment, 81% of our asset base is in South Africa. But if you look at it, the 2 geographies, from a slide that I showed earlier, the 2 geographies we're going to be exposed to going forward will be Poland and South Africa. In Poland, it will be retail and industrial sectors. As you know, in South Africa, it will be the established sectors of office, retail and industrial. Okay. Just moving on to [ Rian Labuscotni ]. He says, "Which of your investments are obliged or likely to still pay dividends before 2021?" So I think [ Rian ] just on that, as we stand here now, I'm talking about offshore listed investment, there's been no announcements on dividends. So I think you need to assume none in the absence of anything otherwise. "How much dividends have been postponed by investments up-to-date compared to full year 2019?" So just on that, [ Rian ], I did mention earlier, and I'll just repeat it, if you look at the number, it's ZAR 1.1 billion that we enjoyed in 2019, that we didn't receive in financial year 2020. Okay, so let's go. Magagula from Umthombo Wealth, he's got a few questions. "Under which circumstances can I expect no further write-downs on Redefine's local property portfolio given the state of SA's consumer health and muted economic growth?" Just on that point, we believe that we've been quite conservative and very deliberate in our asset valuation methodology. We would like to believe that our asset platform now is at a floor from a valuation perspective. Just moving on to the questions. "At what capacity will installed solar panels yield an equivalent 100 basis points increase on the NII margin?" Now Leon can work that out for us. 1% on our margin is a significant amount of money. Can you work it out, Leon? Okay. We'll come back to with your answer. Leon is the only CFO I know that never has a calculator with him. So he's going to have to go find one quickly to give you the answer to that question. "On an aggregate basis, what disposal yields has been achieved by Redefine from the recent disposal program which yield ZAR 13 billion?" Leon, do we have that yield in total? Yes.

[indiscernible]

So on a blended basis of local as well as international assets, it's at about 7.5%. But I just want to stress that our assets that we disposed were at carrying value and above. We didn't sell anything at a significant loss. Moving on, Daniel King from Avior. He asks, "What mechanism are you considering for the distribution?" Daniel, I would have put it into my presentation, if I could. So the mechanisms are subject to ongoing regulatory consideration, and we are in a process there to come up with a construct that everybody is comfortable with. So if you'll please bear with us, the minute we have resolution on this, you guys will be the first to hear. Believe me, it's something that we desperately want to share. But unfortunately given the sensitivities, at the moment we are unable to do so. Then you asked as well, Daniel, "If EPP is not paying a dividend in the near term, is this not an opportunity to pay a dividend in specie, comprising EPP shares instead of cash?" Daniel, I think from an LTV point of view, it would make absolutely no sense to pay our EPP shares out as a dividend. Number one, as you know, the share price is muted in relation to the value that we believe it's worth. But also from an LTV point of view, we've got debt against our investment in EPP. So it would actually be value-destructive, number one but also LTV-destructive in its extreme. So it's not a consideration for us. "Will you be earning a fee for the management of Mall of the South? How will that be calculated?" Daniel, that fee is based on what the market charges for property and asset management. So it's a formula that's in line with all the other service providers out there. "Will you be consolidating the Mall of the South exposure on your balance sheet given the debt guarantee provided? If not, why not?" There's a technical accounting explanation here, Daniel. So I'll let Leon, who's far more experienced in this area, explain to you how we account for Mall of the South at this point in time.

So once the deal is effective, which is effectively from today, the Mall of the South will be held by a special purpose vehicle that is jointly controlled between ourselves and a subsidiary of RMB. And as a consequence, that given the value and the underlying debt within the portfolio, we will not consolidate, and we will not show our pro rata portion of the underlying net asset value given that we will rather account for it on a net settled derivative basis. So effectively, if the market value of the underlying assets is lower than the debt amount, that net liability will be reflected on our balance sheet.

Okay. Thanks, Leon. Okay, I'm just going to move on to Peter Cromberge from Mergermarket. And his question is, "How does Redefine plan to diversify its funding sources in order to match its funding needs with the long-term nature of its property assets? " Leon, do you want to take that one?

Look, that is a constant priority for us. And obviously in the South African context, given traditionally, if you go beyond the 5 years, we managed -- recently we've managed to sort of get 7-year kind of money, if we go beyond that tenor, capital amortization is required, which obviously does not suit a REIT's model. Going forward, in a different capital environment, clearly, that isn't an avenue that one can explore. But from a sourcing alternative funding structures, for us it's continuously important to make sure we diversify the funding base, that we're not reliant on a single source of funding, and similarly that we can manage that maturity profile such that we don't have any unmanageable spikes in maturity from a capital perspective as we move forward.

Okay. Thank you, Leon. Okay. So just moving on then to Ross Krige from JPMorgan. His question is, "Please summarize the amounts and timing of equity capital requirements over the next 2 years for our logistics platform and M1 Marki." So I'll just deal with the easy one first, Ross. M1 Marki, there is a payment of EUR 10 million, which will occur once EPP acquires the third tranche of its M1 asset from Chariot. The timing of that is probably around about March 2021. So we will then pay down EUR 10 million. And then there's a true-up, because we're exchanging M1 Marki for our interest in Chariot. And the true-up will happen in about December 2021. It is a maximum of EUR 15 million but is expected to be around about EUR 10-odd million in 2021. As regards our logistics platform, as I said to you, we have committed -- and sorry, I just need to go to our results presentation and that's included in our annexures here in terms of what we've committed to. I just want to go there quickly. Okay. So we've committed already in 2021 to EUR 14 million of capital expansion in Poland, leaving a further -- if you take a ZAR 34 million of our equity commitment, let's just say, in 2021. But bear in mind, that does need to be reduced by the earn-outs that are still to be received, which total about EUR 19 million. Just staying with Ross here, he is asking more than 1 question. "On the disposals domestically executed, how are prices compared to book values." Ross, as I said earlier, they have been at or above carrying value than at losses. The dividend mechanism, I think that you ask about, was similar to Daniel's. Damian is asking us "Are properties for disposal in the current market capable of disposal of near valuation? " The answer is, yes, they are. Remember, these are noncore assets. They're by no means secondary assets that we are disposing, and there's no mezz loans or vendor funding that we are entertaining given that our prerogative is to reduce loan-to-value. Okay. Just looking then at -- I would assume it's [ Mr. Berman ] from Anchor. "The CEO stated that dividend income will be included on a cash received basis. This appears to differ on SA REIT's associated guidelines. Is this correct?" I think this is now perhaps the crux of the issue that we are dealing with at the moment [ Berman ] in terms of mechanism as well as regulatory approvals. So if you don't mind, can we just put a pin in this question? I do believe that in due course it will be answered to your satisfaction. So Michael is asking us, "Do you plan to retain your current foreign debt exposure? Is this not an open-ended risk?" Well, yes, the short answer is we do want to keep our debt funding that is offshore, because it's funding at very attractive interest rates, our offshore assets. The natural hedge that results from having the asset in the same currency as the underlying funding means that it's not an open-ended risk. This is Anchor Stockbrokers from Pranita Daya. "Would you mind providing us with some insight into how you're assessing the situation with regards to your dividend declaration?" I think we have answered that already. "Since you've provided the potential tax liability, if you're not to pay out a dividend, does it mean you're considering forgoing REIT status?" As I said earlier, Pranita, our preference is to preserve our REIT status. By not declaring a dividend, is an absolute last resort. It's not something that is currently even in our crosshairs. We'll cross that bridge when we get there, but it's certainly one that we wouldn't voluntarily want to do. [ Paulo Doumeda ], "Could you talk us through the various options regarding the distribution?" I think I've answered that already. Samkele Gumede from Nedbank. "Can you give more color on your proposed distribution structure?" I think it's [ ditto ]. And then Fayyaz Mottiar, who needs no introduction, from ABSA. He's asking us, "Why did you not take shares at a discount from EPP for the Chariot transaction? Are you not protecting EPP minority shareholders from dilution at the expense of Redefine shareholders?" Fayyaz, we do not believe so. Number one, EPP didn't have an obligation to acquire M1 Marki. M1 Marki is, in fact, the crown jewel in the M1 portfolio, and our view was to rather exchange lumpy income-producing asset, which is at the mercy of a trading situation, in exchange for an asset that will generate long-term income that is sustainable as well as have development prospects. Bandi Zondo from Standard Bank. "You mentioned that post relaxation of covenants at Feb '21 and August, LTVs will revert lower than 50%. Can you clarify this?" Okay. Bandi, I think if we can perhaps do that off-line with you, in relation to the graph we presented, we'd be happy to take you through that in more granular detail. In terms of the tax liability under the worst case, effectively, we've done a tax computation, Bandi. And if we were not to declare a dividend, that is what the tax liability would be. "What is the value of Mall of the South derivative?" Leon can tell you. I think it's in the region of, I'm rounding up, it's ZAR 130 million, Bandi, that is sitting on balance sheet. "And are you still planning to reduce DCM funding? " I think Bandi, if you have a look at it, we will manage our DCM exposure. As you saw, we have a very low level of maturities in the next 12 months. But that is something that will be under constant review for now. But if you have a look at it, about -- is it 10%? Or less than 10% is actually coming up for renewal in the new year. So we have very little exposure at this point in time. And we believe through the liquidity that we're generating through asset disposals, we'll more than be able to settle whatever we can't roll or refinance through the debt capital markets. And then just another question from Bandi. "Is a rights issue equity raise in any way on the cards?" Now Bandi, thank you for reminding me. It was -- if you looked at my slides on LTV improvements, I did, and I should have highlighted it, thank you for bringing that to my attention, but I should have highlighted that we are not contemplating an equity raise to cure our LTV situation. Okay. I think we -- I've got a very last question here, and this is from Liz. And her question is "Were the exchangeable bonds bought at a premium or at par?" Now Liz, these exchangeable bond notes were early settled. And the mechanism that was utilized was through a buyback, and there was a 1% premium to the par value to ensure 100% success, which we are pleased to report was the case. Okay. So with that, I thank you for your time and your trouble and for your support, your patience and your ongoing confidence in us to ensure that we are able to endure the aftermath of COVID-19, but similarly, position Redefine for growth as the recovery comes our way. And with that, I thank you very much. We look forward to the one-on-ones with you guys. And if we don't see some of you, we wish you a great festive season break and all the best for the new year. Thank you.